Financial_training_DAX2009(6)

1. Basic concepts

account amount for Liabilities and Owner’s Equity accounts is calculated in the following manner: Credit – Debit.

Remember that any Debited account is “good” for a company, and any Credited account is “bad” for a company. For example, when the Cash account is debited it is good because the company’s cash is increased. When the Cash account is credited it is bad because the company’s cash is decreased. When the “Owes the owner” account is credited, it is bad because the company’s debt to the owner is increased. Note that in both cases the amount is entered in the Credit part, the cash is decreased, but the debt is increased and in both cases it is bad for the company.

Look at our circle after the second transaction. The circle has almost not changed. The money was moved from one asset account to another. Note that all accounts contain the total amount. For the asset accounts the total amount is Debit – Credit, for the Liabilities and Owner’s Equity accounts, it is Credit – Debit.

Figure 1.2 Company balances after purchase

Purchasing Pizza Ingredients

To prepare pizzas, the Company decides to purchase, for example, the following ingredients:

50 kg of cheese for $500 300 bases for pizza for $10 25 kg of salami for $300 5 kg of olives for $40

Taras contacts the supermarket administrator and agrees to pay for these ingredients within 30 days. When he brings all the ingredients to the company store, he decides to record a purchase transaction.

First of all he creates the Cheese, Pizza bases, Salami, and Olives accounts to record the amounts spent